After a year of muted response to the Institutional Trading Platform (ITP) for startups, the Securities and Exchange Board of India (SEBI) has further relaxed norms for companies to list on bourses. Accordingly, SEBI proposed that other investors, such as non-banking financial institutions (NBFCs), family trusts and investment funds, could hold 25% in the pre-issue capital other than qualified institutional buyers (QIBs).
In the earlier norms, SEBI said that no entity – individual or collective – will be allowed to own 25% or more of the post issue capital to list on the ITP. The discussion paper (pdf) said that this rule could be done away with.
It proposed allowing non-institutional investors to subscribe to a higher portion of 50% of the offer and reducing the trading lot size to Rs 5 lakh from the earlier Rs 10 lakh.
A Mint report points out that startups and bankers were concerned about Indian investors ability to judge the value of early-stage companies and the liquidity on this alternative trading platform which necessitated these changes. So far, no startup or ecommerce company has listed on the ITP. Rather, Infibeam, opted to take the traditional IPO route for listing.
Other proposals include:
– The ceiling for discretionary allotment of shares to institutional investors be increased to 25% from the existing 10%.
– Market making may be made compulsory for a minimum period of 3 years for issue size of less than Rs 100 crores. Market making is aimed at infusing liquidity in shares that are not frequently traded on stock exchanges.
– The entire pre-issue capital of shareholders will be locked-in for a period of 6 months across all categories. The earlier rules gave exemptions to shares arising from ESOPs and Venture Capital firms.
In June 2015, the markets regulator recommended setting up an institutional trading platform (ITP) for companies to list and relaxed post-listing lock-in for major shareholders of these firms and eased disclosure requirements that IPO-bound companies have to make in their issue prospectus on how they plan to use the money from the offering.